All You Need About Ethereum (ETH) Smart Contract Insurance Pool

Owing to the zeal to reclaim frozen funds caused by code faults in smart contracts, Ethereum foundation is proposing an insurance pool that would be used to reduce the risk of network splits.

The team lead for the Ethereum’s Mist browser, Van de Sande unveiled the news in a blog post stating that the creation of a recovery contract with a devoted insurance fund will help mitigate against the action which an individual or a group will suffer.

For example, in order to recover part or entire fund which is more than $320 million in ETH rendered unspendable after Parity’s multi-signature wallet contract library self-destructed, the owner will have to make a contentious hard fork due to the bug.

“It’s a simple calculation really: let’s suppose the overall Ethereum community decides not move forward with EIP999, but Parity implements it anyway on their very popular client”.

“The probable result is that there will be a new blockchain, let’s call it Ethereum-999 (should we call it the under-millennial?), where over 500,000 ether that were previously stuck on Multisig contracts can now be accessed”, Van de Sande in the post.

How The System Will Work.

In line with his statement, to recover funds in a recovery contract, the developers’ smart contracts would be insured for a predetermined period of years, and they will be reimbursed with an equal number of “recover-ether tokens,” that could be held or sold to speculators.

If the insured Ether is hacked or exploited, making it impossible for the fund to cover the remaining liquid tokens, the recovery process would ensure that the holders of the recover-ether redeem their tokens for a corresponding fraction of the pool’s funds at 90 percent rate. While the outstanding 10 percent will be devoted to the funding of the general insurance of all tokens.

Contrarily, if the recovery process cannot be initiated because the lock-up period is surpassed, the recover-tokens would be destroyed instantaneously, while the issuer receives their locked Ether back.

However, token holders are in charge of administering the recovery contract, deciding on what contracts the fund should insure through vote.

While the proposed system seems to look like an interesting and beneficial one, the recover-tokens could be classified as securities by many regulatory agencies.

Added to the goal of mitigating a contentious network split at risk, which Parity averred that it has no aim of pursuing, Van de Sande maintained that the proposed system would help victims and many others which includes Ethereum’s top developers to become stakeholders in the new fund and this would make the pool gain more power when launched.

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